2. Roles/Functions of money

3. Medium of Exchange
Medium of exchange is a role of money that helps facilitate exchanges
Without money we would have to use the barter system
WIth the barter system there would have to be a double coincidence of wants
which means that one person has to have something the other person wants

4. Store of Value
Money has a store of value that it must hold its value over time, without that it couldn’t be used to complete transactions
Money is liquid which means it is more widely accepted as a medium of exchange

5. Unit of Account
Money as a unit of account is a common measure of the value of goods and services being exchange
Helps people know the accurate amount to exchange in turn for a good or service

6. Monetary Policy

7. What is Monetary Policy ?
the Federal Reserve controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency

8. Types of Monetary Policy
There are two types of monetary policy, expansionary and contractionary.
Expansionary monetary policy increases the money supply in order to lower unemployment, boost private-sector borrowing and consumer spending, and stimulate economic growth.
Contractionary monetary policy slows the rate of growth in the money supply or outright decreases the money supply in order to control inflation

9. Tools and How they work
The Fed can use four tools to achieve its monetary policy goals: the discount rate, reserve requirements, open market operations, and interest on reserves.
All four affect the amount of funds in the banking system.
The discount rate is the interest rate Reserve Banks charge commercial banks for short- term loans
The reserve requirement is the percent of a deposit that the banks are not allowed to loan out
The open market operations is the buying and selling of government bonds/securities on the open market
Interest on reserves is the amount of money the Fed will pay banks to not loan out money (required and excess reserves)

10. Simulation #1 The Reserve Requirement
I need 8 volunteers to be individuals
I need 1 volunteer to be a bank
Increase Reserve Requirement = Decrease to the Money Supply (Contractionary)
Decrease Reserve Requirement = Increase to the Money Supply (Expansionary)

11. Simulation #2 The Discount Rate
To my left are banks
To my right are individuals and businesses
Increase Discount Rate = Decrease to the Money Supply (Contractionary)
Decrease Discount Rate = Increase to the Money Supply (Expansionary)

12. Simulation #3 Open Market Operations
If you have money, multiply what you have by 100
Those of you that have money, you are interested in buying bonds if it is beneficial for you
Those of you that have bonds, are interested in selling if it is beneficial for you
Sell Bonds = Decrease to the Money Supply (Contractionary)
Buy Bonds = Increase to the Money Supply (Expansionary)

13. Simulation #4 Interest on Reserves
If you have money, you are a bank and your goal is to make money
Increase Interest on Reserve = Decrease to the Money Supply (Contractionary)
Decrease Interest on Reserve = Increase to the Money Supply (Expansionary)

14. Organization of the FED

16. Board of Governors
Consist of 7 members appointed by the President of USA & confirmed by the Senate
They oversee system operations, make regulatory decisions, & set Reserve Requirements

17. Federal Open Market Committee
Composed of the 7 members of Board of Governors & 5 Reserve Bank presidents
Conduct most of monetary policy by using the tools of the FED
Want to foster economic growth by influencing the flow of money

18. Federal Reserve Banks Composed of 12 Regional Banks
They monitor the economy and financial institutions in their districts
They provide financial services to the US government
Store currency and processes checks
All bankers bank
Sell government securities

19. Try your luck
Partner up with someone and we are going to try your hand at being the FED chair
Go to the following website and await instruction

20. Assessment
Go to Socrative.com
The room name is ECONACADEMY